THE country’s banking regulator has urged lenders to conduct thorough checks and report their business ties with troubled Baoshang Bank, as the authorities seek to head off potential financial risks, four sources told Reuters yesterday.

Regulators announced Friday the takeover of Inner Mongolia-based Baoshang Bank, citing serious credit risks. The rare move jolted financial markets, lifted interbank borrowing costs and stirred contagion fears.

Regional units of the China Banking and Insurance Regulatory Commission (CBIRC) have issued notices to lenders, asking them to report direct and indirect assets they hold in connection with Baoshang Bank, said the sources with knowledge of the situation.

“The CBIRC wants to get to the bottom of potential risks,” said a regulator who declined to be identified.

Regulators have also issued instructions for the repayment of debts owed by Baoshang Bank that could see larger debts facing haircuts of as much as 30 percent, news portal Sina.com reported yesterday, quoting a statement.

According to instructions in the statement, regulators would guarantee all principal and interest of corporate deposits and interbank liabilities below 50 million yuan (US$7.23 million), but will guarantee the principal but not the interest on interbank debts between 50 million yuan and 100 million yuan.

Debts of more than 5 billion yuan will have no less than 70 percent of their principal guaranteed, the report said.

For debts between 100 million and 2 billion yuan, regulators will guarantee no less than 90 percent of principal, and for debts of 2 billion yuan to 5 billion yuan, no less than 80 percent of principal will be guaranteed.

The report said implementation of the debt guarantees would be carried out at the provincial level.

“[The regulators’] mood is very clear, they want to clarify the plan as quickly as possible to stabilize expectations, and reduce potential risks as much as possible,” said an unidentified analyst.

Baoshang has not published any annual reports since 2016, citing a plan to seek strategic investors.(SD-Agencies)